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Thursday, August 30, 2012

Netflix Needs to Prepare for War

In the battle for supremacy in the online video streaming arena, Netflix's (NFLX) most serious wounds have been self-inflicted. The field is thick with competitors, but it isn't playing for blood. It seems as if they are content to sit around and wait for Netflix to fall on its sword. Surprisingly, this tactic actually appears to be working.

Netflix experienced its first self-inflicted wound when Andy Rendich, Netflix chief service and operations officer, announced that it would begin charging separate fees for its DVD and streaming services. The fee restructuring took effect immediately for all new subscribers and on Sept. 1st, 2011, for all current subscribers. The blogosphere blazed with outrage over the 60% price increase. Netflix CEO Reed Hastings managed to rub salt in the wound with his dismissive attitude toward the outcry from subscribers. Hastings' hubris is summed up perfectly in his now infamous quote: "It's something we'll monitor, but Americans are somewhat self-absorbed." Those are words I expect he would like to take back.

The next wound came 17 days after the price hike took effect for current subscribers, as Hastings offered some reflections and explanation for the price hike and announced that the company would be split up into Netflix and Qwickster. Netflix would be the streaming business and Qwickster would be the DVD by mail business. This would take place in a "few weeks" and would require subscribers to manage their DVD and streaming services from separate websites, with separate logins and passwords. Read more...

Thursday, July 19, 2012

IMAX: The Bear Case Just Doesn't Add Up!

It is important to read analysis that is contrary to your opinion when doing stock research. So many people have already made up their mind before they begin their research. I see this mistake so often with retail investors. They google a ticker symbol and read the articles that "confirm" their point of view and pat themselves on the back for getting it right without putting in the work. It is a difficult thing to be critical of your own ideas. You don't often hear, "Man, I have this really terrible idea I just have to tell you about." That is why it is so important to seek out the contrary perspective especially when everyone else seems to agree with you.

 This was exactly the case of my bullish stance on IMAX Corp (IMAX). While I was doing my stock research I found article after article that treated a bullish stance on IMAX to be obvious, so much so that the articles rarely included much substance or analysis. I was guilty of this myself. It wasn't until I was blasted in the comment section of another one of my articles that I realized it. I decided it was time to step up my game. I decided that the way to do that was to re-write my first article and take on the biggest IMAX bear I could find. Read more...

Friday, June 22, 2012

Hook em While They're Young

Have you ever tried bringing up the stock market in casual conversation around friends and family? It's an odd experience. You are likely to get a variety of reactions. Some raised eyebrows, some crinkled foreheads, perhaps a tirade against big business or curiosity surrounding the mystery the market represents for most Americans. The average American knows next to nothing about the stock market and views it with a mix of suspicion, derision and awe. Many think of it as that place that rich people make their money. Others think of it as gambling but a lot less fun. Many don't even realize that they are stock owners themselves because they don't truly understand how their pension plans, 401K and IRAs work. I try to raise the collective financial IQ of those around me but I often feel like a door to door evangelist but instead of asking "have you been saved?" I ask "have you saved for retirement?"

Perhaps the lack of education is because our parents depended on company pension plans and social security to take care of them in retirement. They didn't need to know about the stock market so they simply don't have the knowledge to pass on. Unfortunately, the world has changed and company pension plans are nearly extinct and social security is on life support. Our education system reacts to the changing world about as well as the Titanic reacted to that iceberg.   Read more...

Friday, June 15, 2012

Buy American!

Growing up my father always told me to work with my mind instead of my back because my mind will last a whole lot longer. My mother always said that I need to go to college, get a degree and find a job with a big company and if I stay with them for 30 years they will take care of me when I retire. Well, as far as advice goes I am going to give the edge to my father on this one. It is not that my mother was wrong, at least not when she said it, through the late 1980’s and early 1990’s. The world changed and that advice became obsolete. Employers have retired traditional retirement plans. Now we are left to fend for ourselves with 401Ks and what is left of Social Security.
If you have a self-directed 401K or IRA or perhaps you simply have a long investment horizon (5 years +) I have a bit of sage wisdom for you. Buy American! I am a veteran of the US Army and I definitely consider myself a patriot but that is not why I believe in investing in American companies. I believe in investing in companies you know and businesses you understand. You should own companies that you don’t need to subscribe to the Wall Street Journal (great publication by the way) to hear about. You should see their advertisements on the television and in magazines you read. Read more...

Sunday, June 10, 2012

Netflix: Their Perfect Blunder?

Eleven months ago Netflix (NFLX) was on the verge of becoming a $300 a share stock, a milestone Apple (AAPL) was striving for at that time. While Apple reached its peak at nearly $630 a share and is still valued in the upper $500 range, Netflix has plummeted to $62 a share.  A lot can happen in eleven months. What is so tragic about Netflix’s fall from grace is that it was entirely their doing. If an analyst wrote a script on how to drive Netflix customers away, I expect it would look exactly like what happened from July to September in 2011.  

Netflix and Coinstar’s (CSTR) Redbox had already sent Blockbuster into Bankruptcy proceedings and Netflix was still light years ahead of every would-be competitor in the streaming video market both in technology and content. Customer satisfaction was sky high, subscriber numbers were over 23 million and climbing and then it happened. In July of 2011, Reed Hastings, CEO of Netflix, announced that as of September 1st, 2011 Netflix was going split the streaming and DVD delivery services and charge a separate fee for each that equated to a 60% price hike. Public outrage erupted immediately. The Facebook (FB) post in which Netflix announced the price change received over 28,000 comments many of which were customers threatening to cancel their subscriptions. Read more...

Thursday, May 31, 2012

IMAX: The Big Picture

Avatar, the overwhelmingly successful James Cameron film, didn't change anything for IMAX Corp (IMAX). It just cast a light on the potential that none of us understood the week before it opened. The recipe was there the whole time but nobody was biting until James Cameron put out a spread that was irresistible. Avatar showcased everything that is great about the IMAX experience; the larger than life screens, the vivid high definition effects, the incredible sound systems, the next generation 3D technology and the fat premium attached to the ticket sales for the IMAX format and 3D. It was not only incredible for the consumer but attractive for the movie houses as well. Since Avatar there has been a string of blockbusters that have shattered box office records with a big boost from IMAX Corp's premium formats. The most obvious successes have been Harry Potter and the Deathly Hallows 2, Transformers: Rise of the Fallen, Hunger Games and The Avengers.

A few films grossing over a billion dollars isn't the whole story though. In fact, it is just a thumbnail of a much larger picture. In 2008, there were just 210 commercial IMAX multiplexes. Fast forward to the middle of 2012 and there are over 580 multiplexes, over 300 of which are the joint-ventures in which IMAX takes a share of the box office. Read more.....

Friday, December 16, 2011

My take on Activision Blizzard

If you are looking for the perfect gift for the video gamer in the family perhaps you should consider skipping the hustle and bustle of Walmart Stores (WMT) during the holidays and purchase a handful of share of Activision Blizzard (ATVI). Your gamer, regardless of his or her age, will have undoubtedly played one of Activision’s vaunted titles. Even those not amongst the ranks of avid gamers are likely familiar with one or more of their award winning games like the massive multiplayer online game World of Warcraft. Another popular Activision title, Call of Duty, released another iteration, Modern Warfare III in November garnering $1 billion in just 16 days outpacing the science fiction mega hit Avatar to the mark. No small feat.  

Traditional video game companies, as opposed to social media gaming companies like Zynga, live or die by their flagship titles. Activision has a strong stable of blockbuster titles diversified amongst the various gaming genres. These titles include World of Warcraft, Call of Duty, Starcraft and Diablo. The latter is due to release a highly anticipated sequel, Diablo III but what really makes Activision special is what you find under the hood if you care to look.

This company’s market value is just over $14 billion and they have zero debt. They also have over $2.9 billion dollars in cash on hand which equates to just over $2.50 per share. With a stock price of only $12.25 that adds significant value to Activision’s shareholders. (To read more click link below)


My take on the Zynga IPO

If you are interested in reading my take on the upcoming Initial Public Offering (IPO) of the social media company responsible for Mafia Wars, Farmville, Words with Friends and many other games made famous by Facebook click the link below.

Investment Underground

I have been writing for Investment Underground for a few months now. You can read my articles as well as many others there. Give it a loook. I would be happy to hear your impressions.

Wednesday, November 2, 2011

How to Analyze a Dividend Stock

I recently wrote an article for the Investment Underground (Click Here) in which I provided recommendations on five dividend stocks and a justification for each recommendation. When you analyze so many similar stocks one right after another you tend to find a system and a rhythm. The first stock might require 3 hours or more to really feel comfortable before making a call. The next may go faster since you have identified where to find the information you seek already and have another set of stocks (the first stock and competitors) in which to compare. By the fifth stock (which actually means you have looked at 20 or so) the system is tight and you can see the patterns and make the calls in 30-45 minutes.

Since I have been there and done that, I figured I would share. Here is my system for analyzing dividend stocks. I am not suggesting that there won't be a learning curve. Don't expect to make a call on a stock in the same amount of time it takes you to watch an old episode of Wonder Years on Netflix (Ticker Symbol: NFLX) but you should be able to decide whether or not a stock is worth putting on your watchlist and whether you should do a bit more homework on it.

The obvious place to start is at the dividend yield. For those new to the world of dividend investing the yield is calculated by taking the annual dividend distribution and dividing it by the current stock price. If you are scared of math you may have stumbled into the wrong hobby but don't fret. This value is given to you free of charge at nearly every finance website. I prefer Yahoo!

Determining what size dividend yield you want is a personal choice. I will leave that part up to you. I am going to focus on the actual analysis of the stock in question but it is important to know what the dividend yield is so we can compare it to what it was and what it could be in the future.

Knowing what the yield right now doesn't do you much good if the dividend might vanish or be reduced next quarter. To ensure that doesn't happen you have to determine the dividend's sustainability. This is primarily a question of the company's overall financial health. To get a handle on that you should look at the following key statistics;

Earnings - Like any stock evaluation, you want to see positive and improving earnings. The more the company makes on the bottom line the more they can potentially distribute to their shareholders.
Cash - A healthy cash reserve will allow the company to sustain the dividend even if they have a few rough quarters. I like to see a cash reserve that is no less than 1/4 the amount of debt a company holds. This ratio is somewhat arbitrary and may not be appropriate for all industries but it is an indication that the company can handle it's debt load and can cut interest expense by paying down debt quickly. That flexibility is very attractive.
Operating Cash Flows - This is another number that should be compared to the amount of debt a company holds. Again, I would like to see a 1/4 ratio of operating cash flow to debt. As stated above, This shows the ability (though not the intent) of a company to pay down debt to ensure that interest expense does not eat away at profits.
Debt - As long as the comparison of cash and operating cash flows and debt stay reasonable everything looks OK. When a company's earnings can't support the dividend and the company starts borrowing to pay their dividend there is cause for concern.
Payout Ratio - The payout ratio shows how much of a company's earnings go towards dividend distributions. In general, the lower the number, the better. However, a number below say, 15% may be an indication of the company's lack of conviction regarding returning cash to its shareholders. This may warrant additional investigation into the company's philosophy on dividend distributions. If the company can afford to provide more cash to the shareholder, why isn't it? A number above 90% may mean that the company isn't earning enough to sustain the dividend at its current yield.

Once you are reasonably sure that a company can afford to continue to provide a dividend the next step is to check on the consistency of that dividend. Poor financial health isn't the only reason a dividend stock might decide to reduce or eliminate its dividend. Often a yield will be affected in the short term by a steep reduction in stock price. Whether or not that stock price change is justified does not really matter. The company may have a specific target for it's dividend yield and may adjust the distribution lower to account for the change in stock price. To get a feel for the dividend's consistency look at the following information;

Distributions over the past 5 years - This information can be quickly retrieved through Yahoo! Finance. Simply go to the stock's summary page by typing in the ticker symbol in the search bar and clicking "Get Quotes". Along the left side of the page click "Historical Prices". Toggle to "Dividends Only" and viola. Here you want to see a reasonable progression upward which would indicate distribution growth. If you see wild distribution changes the company may be adjusting in consideration of stock price, earnings, seasonal trends or on a whim. Regardless, unpredictability is not an attractive trait in a dividend stock.
Earnings Call transcripts - I like to search the earnings call transcripts for the word "dividend" to see what the company has to say about their intentions regarding the dividend.
10-K and 10-Q reports- You can also do a search on these annual and quarterly SEC filings to identify the comapny's philosophy on dividend distributions.

Now that sustainability and consistency have been checked it is time to look at dividend growth prospects. At this point you have already looked at the statements regarding dividend distributions in both the SEC filings and the conference call transcripts. You should have a decent grasp of whether the company is satisfied with its current distribution and yield but if they were mum on the subject you can look at thier ability to grow the distribution and make your own decision. To do this we consider some of the same information that we have already collected; payout ratio, cash, debt, operating cash flow. I like to compare these numbers to that of there nearest competitors. For instance, if I wanted to look at Coca Cola Company (Ticker Symbol: KO), I would also look at Pepsico Inc (PEP) and Dr Pepper Snapple Group (DPS). Comparative analysis is an important part of any first quick turn around analysis because it provides context and a jumping off point. Things to consider;

Who is the industry leader? - The leader may not provide as big a dividend as the 2nd and 3rd ranked company because they don't need to do so to attract investors. They often have a slightly higher P/E as well.
Who has greater growth prospects? The industry leader may not grow as fast as the smaller, younger companies and may compensate for a stagnant stock price with an increased dividend yield. Likewise, companies with greater growth prospects will have to spend money instead of distributing it as a dividend to achieve that growth.
Which comapny appears to be operating more efficiently - Companies that are more mature tend to operate more efficiently and can therefore afford to provide a higher dividend yield with less impact to there bottom line. Compare return on equity (ROE), return on assets (ROA) and return on investment (ROI) for an indication of a company's efficiency.

This is not an all inclusive analysis and more homework needs to be done. However, I did provide a great base for your analysis that may speed things up. Chances are you will rule more out quickly with this system and that is a good thing. A thorough end-to-end analysis should be done prior to making any buying decisions. I hope you found this article helpful. Thanks for reading.

Friday, September 16, 2011

Earning cash on the side through

We can all use a bit more cash even in the best of times and these, I am sure you have noticed, are not 'the best of times'. Unemployment is pegged at over 9% and under-employment (current employment not adequately meeting your financial needs) is far higher. If you are one of the unlucky ones that has been unemployed for more than six months, finding a job isn't getting any easier. The daily grind of job searching, resume editing, cover-letter writing, filling out applications and the occasional interview is taxing. If your looking for a way to break up the drudgery and make a few bucks while your at it, I have a few suggestions.

This is the first of a series of blogs I call Cash on the Side. This series will focus on methods of legitimately earning cash to keep you going through the tough times, pad your nest egg, save up for tickets to Disney World or whatever your financial aspirations may be.

Let me introduce you to  

Some of my more observant readers might notice the Odesk advertisement over there (=====>>>). Odesk is an online resource that connects online employers to online contractors. You might be saying to yourself, "but I am not an online contractor." Neither was I but that is the good part, you can be. If you have knowledge, skills or an abundance of spare time you can be an online contractor. Unemployment might be sky high but there is no lack of online work and through Odesk you can find thousands of job listings.

This is not a get rich quick scheme. The pay is commensurate with the difficulty of the work. The more tedious, repetitious and unskilled the job requirements the lower the pay. More specialized, difficult work pays more. For example, I have earned a few hundred bucks through ODesk by ghost-writing 500 word articles that serve as content for other peoples websites at $5 per article.

What types of job listings are on 

The jobs posted vary in duration from a single task that may take 20 minutes, like creating a spreadsheet t, to long term employment as a virtual assistant or software developer. The pay ranges from a couple of bucks for unskilled work to thousands. Some jobs are as simple as data entry (transcribing a PDF document into an Excel spreadsheet) or as complex as software development, drafting a business plan or providing financial analysis reports. There really is an amazing range of job listings. Below you will find a list of some of the available categories and sub-categories posted;

  • Web Development - Web design, E-commerce, Website Project Management
  • Software Development - Desktop Applications, Game Design, Mobile Apps
  • Network and Information Systems - Network, Server and Database Administration
  • Writing and Translation - Technical Writing, Creative Writing, Website Content
  • Administrative Support - Data Entry, Personal Assistant, Web Research
  • Design and Multimedia - Graphic Design, Logo Design, 3D Modeling and CAD
  • Customer Service - Technical Support, Phone Support, Customer Service and Support
  • Sales and Marketing - Advertising, Search Engine Optimization, Public Relations
  • Business Services - Accounting, Business Consulting, Statistical Analysis
How does work?

The first question on your mind is probably the cost. Good news! It's is free for contractors. Employers foot the bill. The rate that Odesk charges the employer is 10% for each transaction. If the contract is for $50 then the work will cost the employer $55 total.

WARNING: Be sure to discuss whether or not the Odesk fee will be passed to you prior to accepting a contract. Otherwise you may take a job and fined your payment reduced by 10%.

Anyone can search for opportunities on Odesk but to apply for a contract you will have to take the time to build a profile. I highly recommend crafting a meaningful profile. Online contracting requires a certain amount of trust on both sides of the job. Providing a profile picture, listing work history, taking some assessments to back up your expressed skills and abilities will likely garner more invitations to apply for contracts. The number of jobs you can apply to is directly linked to how much effort you put into creating your profile.

WARNING: Likewise, you should not accept contracts from employers that do not have a history of paying for work. Odesk does allow employees and employers to provide feedback similar to that on EBay or Amazon. This helps to ensure the employer is reputable. Odesk also allows you to see how many jobs an employer has posted, how many are active and how much money they have paid out. All good indicators of whether you can trust the employer. 

After you create a profile you can cruise the site for jobs. Read the entire job description before applying for a contract. I recommend steering clear of job listings that use poor grammar, have misspellings and lack detail. Many employers will put a key phrase at the bottom of their job listing and request that you transcribe it at the top of your application. This is to determine whether or not you read the entire listing and can follow direction. It also ensures that an actual person has applied for a job manually and is not using a computer program (computers cannot read text directions). Many employers want you to have Skype (Free online video chat service) for interviews or project meetings.

Added benefits of online contracting....

Being an online contractor, even if you don't get an abundance of work, can fill gaps in your work history on your resume. This continuity could be the difference between getting the job or not. The resourcefulness and determination to be a part of the workforce and not rest on your laurels is a quality that many employers can appreciate.

You can also expand your skill set by taking assignments that require you to learn new things and develop skills you already have. This is a way to gain the experience you need to get to the next level in your current career path or to transition to another career without the risk of quitting your current job.

You can look for work that aligns with a hobby, creative writing perhaps. If you have every wanted to be a writer or jounalist, this is an opportunity to test those waters albiet at reduced pay. There are many job listing for ghost-writers or collaborators on books, manuals and scripts listed.

If it is too good to be true, it probably is....    

I listed a few warnings above but just in case you breezed by them or have a pronounced inability to see words written in italics (Hey, it could happen), here they are again;

There are scammers on this website. Be careful. Odesk does not provide any sort of conflict resolution. There are pretty simple ways to avoid them but it requires you to stay vigilant. Don't accept contracts from people that have no feedback, have not paid out to contractors or have very brief or grammatically incorrect job listings. Be sure to ask questions and clarify the expectations, deadlines, pay and whether you or the employer will pay the Odesk fee prior to accepting a contract.

Good luck!!!

NOTE: If you decide to create a profile on Odesk you can get to the webpage by clicking the Odesk advertisement on the top right of this page. If you create a profile and start working, I would appreciate if you come back and leave a comment on this page. Let me know if this article helped you out.